(STATEHOUSE) - Governor Pence has left the door open to expanding Medicaid under the federal health care law -- but only on Indiana's terms.

Indiana formally opted out of the health care law's proposed expansion of Medicaid eligibility this month. But Pence says it's Medicaid that's the problem -- he charges the program is locked into a spiral of rising costs.

In contrast, he says former governor Mitch Daniels' Healthy Indiana Plan, which is built around medical savings accounts, produces both cost efficiency and better health results by placing greater importance on preventive medicine.

Pence says HIP could serve as a model for a national overhaul of Medicaid.

In a letter to Health and Human Services Secretary Kathleen Sebelius, Pence says an expansion of HIP is the only circumstance under which Indiana would reconsider its decision to opt out of the Medicaide expansion.

The Senate has approved a bill allowing the state to expand eligibility, but only if it's done through HIP. Indiana needs federal approval to continue the program at all, whether it expands eligibility or not.

Pence says he raised the issue this week with Sebelius while in Washington for a National Governors Association conference.